LONDON, July 5 (Reuters) – Emerging stocks dipped on
Thursday after rallying 6 percent in the past week ahead of an
expected cut in euro zone interest rates, while political
instability hit the Romanian leu.
Emerging markets have joined in a broad rally in
anticipation of stimulus-providing monetary easing from major
central banks, with greater optimism about a resolution to the
euro zone debt crisis also offering strong support.
Markets softened ahead of the European Central Bank policy
decision at 1145 GMT, expected to result in a cut in rates by 25
basis points to a record low 0.75 percent.
The Bank of England is also expected to launch a third round
of quantitative easing on Thursday, with at least 50 billion
pounds of gilt buying.
Benchmark emerging equities eased from six-week
highs set in the previous session, with Chinese shares
down 1.2 percent. Sovereign debt spreads edged out after
hitting their narrowest in six weeks on Wednesday, while
emerging European currencies mostly fell.
The Romanian leu hit a five-week low against the
euro, approaching record lows set in May, on political concern
as Romania’s leftist government seeks to suspend and impeach the
country’s centre-right president.
“These developments have a negative side effect on Romanian
economic equilibrium, as well as exacerbating the risks of more
substantial capital outflows amidst the EMU turmoil,” said
analysts at Societe Generale in a client note.
The cost of insuring Romania’s debt against default rose 14
basis points to 413 bps in the five-year credit default swap
market, according to Markit.
The zloty edged off recent two-month highs after
the central bank left rates unchanged on Wednesday, as expected.
(Reporting by Carolyn Cohn; Editing by Catherine Evans)
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